The London Stock Exchange Group’s clearing house, LCH, has launched a new clearing service to improve efficiency and reduce risks for customers.
LCH said the new CustodialSeg account, under its SwapClear service, will enable buy-side clients to deliver collateral directly to the clearing house, rather than going through a clearing member, as part of a transaction.
Aviva Investors is the first buy-side client to use the new account type and JP Morgan is the first clearing member to take part. This means that Aviva, when transacting, will post its collateral directly to LCH rather than doing so through JP Morgan.
In order to deliver collateral straight to LCH, Aviva and other clients must open a segregated account with an International Central Securities Depository (ICSD). Euroclear Bank is the first ICSD to provide this service for the CustodialSeg account.
LCH said the new service “increases operational efficiency and also eliminates the transit risk arising where a client delivers collateral to the clearing house via its clearing member”.
Aviva’s Barry Hadingham said: “Being able to lodge collateral direct with LCH is a positive step as it allows us to manage our collateral delivery more effectively and to ensure our assets remain identifiable as ours, while lodged at the CCP [clearing house]. We’re proud to be the first client to use this new account type and look forward to continuing this work with LCH.”
JP Morgan’s Nick Rustad, head of global clearing for the bank, said: “Innovations such as CustodialSeg aim to increase efficiency and reduce risk within the clearing system. JP Morgan is committed to remaining at the forefront of industry initiatives that further these aims and therefore is pleased to be among the first clearing brokers and custodians to partner with LCH in the development of this service for our clients.”
On the clearing member side, both BNP Paribas and HSBC have said they are ready to sign up to the new system.